Coulter v Chief Constable of Dorset Police

A defect in a statutory demand does not itself require the demand to be set aside. Under rule 6.5(4)(d) of the Insolvency Rules 1986, the court must decide, on the circumstances existing at the hearing, whether it would be unjust to allow the demand to have its statutory consequences.

Where the person on whose behalf the demand was served has become the legal creditor before the hearing, and can thereafter present a bankruptcy petition, refusal to set aside the demand causes no injustice if the debtor receives the full three-week period for compliance. The statutory demand procedure is directed to payment or a proper challenge to a debt, not to technical defects which cause no prejudice.

The appellant sought to set aside a statutory demand for costs awarded against him in 1997 proceedings brought by the then Chief Constable of Dorset Police. The former chief constable had retired before the demand was served. The office of chief constable had no separate legal personality, and an express assignment of the judgment debt to the current chief constable was executed only after service of the demand.

A Deputy District Judge refused to set the demand aside. On appeal, Patten J held that the benefit of the judgment had passed in equity to the successor chief constable: [2003] EWHC 3391 (Ch); [2004] 1 WLR 1425. The debtor appealed. The central issue was whether the demand should have been set aside despite the later assignment.

1. Appeal dismissed. Chadwick LJ, with whom Carnwath and Waller LJJ agreed, held that the Deputy District Judge was right to refuse to set aside the statutory demand, although not for the equitable-assignment reasoning adopted by Patten J.

2. The statutory demand procedure under the Insolvency Act 1986 enables a creditor to rely on non-compliance as evidence of inability to pay. A bankruptcy petition must nevertheless be presented by a person to whom the debt is owed. Ordinarily, a demand served by a person who was not a creditor at the hearing of the set-aside application should be set aside, because no proper petition could follow from it.

3. That was not this case. Before the hearing before the District Judge, the former chief constable had assigned the judgment debt to the current chief constable under section 136 of the Law of Property Act 1925. She was therefore the legal creditor at the hearing and could present a petition based on the demand.

4. Following In re a Debtor (No 1 of 1987), [1989] 1 WLR 271, a defect in a statutory demand is not conclusive. The question under rule 6.5(4)(d) of the Insolvency Rules 1986 is whether allowing the demand to have its statutory consequences would be unjust on the circumstances at the hearing. There was no injustice here: the debt was a judgment debt, the police authority was beneficially entitled to recovered costs, any qualifying claims against the chief constable could be set off in equity, and the current chief constable could give a valid discharge.

5. The debtor was entitled to the statutory three weeks from notice of the assignment before a petition could be presented. The order was accordingly that a petition based on the demand could be presented only after 21 days. The appeal was dismissed with costs.

1. Court of Appeal (Civil Division). The appeal was dismissed. The statutory demand was not set aside, but a bankruptcy petition based on it could be presented only after the debtor had received 21 days for compliance.
2. High Court, Chancery Division. Patten J dismissed the debtor’s appeal from the District Judge, holding that the successor chief constable had acquired the judgment debt in equity: [2003] EWHC 3391 (Ch); [2004] 1 WLR 1425.
3. St Albans County Court, bankruptcy jurisdiction. Deputy District Judge Lewis refused to set aside the statutory demand.